Wooing non-residents: RBI paves way for India to join global bond Index

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Published: March 31, 2020 3:00:45 AM

Of the five securities made eligible under FAR, two 5-year papers mature in 2024, two 10-year bonds mature in 2029 and one 30-year paper matures in 2049.

These specified securities, once so designated, would continue to be eligible for investment by residents and would remain eligible for investment under the FAR until maturity, the RBI said.These specified securities, once so designated, would continue to be eligible for investment by residents and would remain eligible for investment under the FAR until maturity, the RBI said.

Paving the way for Indian bonds to become part of a global bond index, the Reserve Bank of India (RBI) on Monday notified five government securities (gilts) that would be eligible for investment by non-residents without any restrictions under the Fully Accessible Route (FAR).

Ananth Narayan, professor-finance at SPJIMR, told FE that specifying five existing securities under FAR is a positive step, since FAR now starts with about $60 billion of eligible securities. “The quantum will steadily increase as fresh 5-year, 10-year and 30-year adds to the kitty. While the process could still take some time, we are hopefully on our way to inclusion into at least a few gobal indices,” Narayan said.

“Depending on the outstanding value of the five securities, India could become a part of an index such as the JP Morgan Global EM Index or the Bloomberg Global Bond Index Fund. This is definitely a boost for the bond markets,” Jayesh Mehta, country treasurer, Bank of America, told FE. “Once the weightage in the index is known, the investors who follow the index will buy into these securities,” Mehta said.

These specified securities, once so designated, would continue to be eligible for investment by residents and would remain eligible for investment under the FAR until maturity, the RBI said. The government had announced in the Union Budget 2020-21 that certain specified categories of Central government securities would be opened fully for non-resident investors without any restrictions, apart from being available to domestic investors as well.

Of the five securities made eligible under FAR, two 5-year papers mature in 2024, two 10-year bonds mature in 2029 and one 30-year paper matures in 2049. “In addition, all new issuances of government securities of 5-year, 10-year and 30-year tenors from the financial year 2020-21 will be eligible for investment under the FAR as ‘specified securities’,” the RBI said in a statement.

The RBI also notified on Monday that it has increased the limit for FPI investment in corporate bonds to 15% of the outstanding stock for the fiscal year 2020-21 FY21. As a result, the revised limit for FPI investment will stand at Rs 4.29 lakh crore for the first half of FY21 and will increase to Rs 5.41 lakh crore for the second half of the fiscal. According to data on NSDL, Foreign Portfolio Investors (FPIs) have utilised just 54.65% of the investment limits in corporate bonds as on March 27. Since January, FPIs have sold a net $1.6 billion of corporate bonds.

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